'I got there just before seven and he stunned me straight out with the boldest plan yet. 'How would people feel if I gave Paddy a place in the cabinet and started merger talks?' Fuck me. I loved the boldness of it, but doubted he could get it through the key players. He had the Clause Four glint in his eye. He'd hinted at it a few times in the past, but this sounded like a plan. He was making a cup of tea and chuckling. 'We could put the Tories out of business for a generation.'"

Alastair Campbell noted down that conversation with Tony Blair on April 26 1997, less than a week before the general election and with the curtain already falling on Labour's opposition years. Five days later, the voters swept Labour back to power with a majority so large that all thought of implementing Blair's bold plan was carried away on the surging political tide.

The exchange nevertheless encapsulates three important things about Blair. First, that the aim of bringing the Labour and Liberal Democrat traditions together was very much on his mind in 1997. Second, that he was unusually ambitious in his goals and audacious in his tactics - take good note of the key word in his comments to Campbell, which is "merger". And, third, that he had a deeply unrealistic optimism about the chances of getting his way - on merger and later on other things - which made him far less effective than he might otherwise have been.

Now Blair has been gone from the political stage for a while, it is important to think afresh about that moment from a decade ago. Right now, it suits many Labour and Lib Dem activists not to do so. Each is more comfortable dismissing the episode as just another Blair thing: Labour because it shows Blair's ideological apostasy, the Lib Dems because the outcome shows him as untrustworthy.

Yet what happened between the two parties in 1997, as well as what didn't, marks it as a far more unresolved moment than these censorious views allow. And, since few of the questions underlying it have disappeared 10 years on - questions about the nature of the 21st-century progressive project and the nature of the British party system - it is important to examine whether, and if so how, such a window might ever open again in the foreseeable future.

To imagine the 1997 missed Lib-Lab moment as an aberration on Blair's part is misleading. On the contrary. It would be more truthful to see it as a fumbled culmination of a debate about progressive governance that lasted, in one form or another, for much of the 20th century, and continues today. It was, and still is, a debate about how to replace the Conservative party as the natural party of government with, to adapt David Marquand's words, a Labour-led equivalent (led by Labour because of its greater size rather than any greater virtue) of the heterogeneous, ramshackle, but extraordinarily successful progressive coalition which the Liberals had led before the first world war.

Certainly, no one who knows the history of this paper and writes about politics for it can be in any doubt about the tenacious longevity of the question. We are today only five years away from the centenary of an editorial in which the Manchester Guardian's owner and longest serving editor, CP Scott, wrote of Labour and the Liberals as "two divisions of the party of progress" and warned against the possibility that "while Liberalism and Labour are snapping and snarling away at each other the Conservative dog may run away with the bone".

That was an important question in 1912 and it will still be an important question in 2012. Scott and his leader writers, CE Montague and LT Hobhouse, the latter of whom was approvingly quoted by Blair in a speech to the Fabians in 1995, understood it, just as John Maynard Keynes understood it in a brilliant 1926 lecture, and as Marquand also understood it in his still-important 1991 book, The Progressive Dilemma.

Labour's decade of power since 1997, unprecedented in the party's history, may seem to have marginalised the progressive dilemma. The mainstream Labour view in 1997, held by Campbell among others, was simple: who needs the Lib Dems? Today, as Gordon Brown jettisons parts of the Blair baggage, Labour's fresh confidence has bolstered that instinct again.

Yet the progressive dilemma as explored by Marquand has two dimensions which keep on recurring and which cannot be disentangled from one another. One is ideological. What now is the scope, tenor and content of the progressive project around which a majority of the electorate can be sustained? The other is arithmetical. How can such a long-term progressive project be sustained without cooperation, and even merger, between different parties and their different electorates?

The paradox of Blair's three election victories is that they were so large they seemed to make the idea of convergence with the Lib Dems wholly redundant. In terms of parliamentary arithmetic, that was and still is undeniable.

Yet in terms of the more informal legitimacy of the popular vote, the case was thinner. Even in 1997, Labour "only" captured 43% of the vote. The case became thinner still in 2005, when Labour collected an overall majority of 64 seats on the basis of 35% of the vote in an election with only a 61% turnout. Even today, when the party feels itself once again the cock of the political walk, the most recent Guardian poll gave Labour only 39% support.

When Richard Nixon coined the term "moral majority" in the 1960s, he was thinking of the moral principles of the majority of voters. These days, though, British governments need the legitimacy of a different sort of moral majority if they are to carry through a sustained programme. If Brown's renewed talk about electoral reform for Westminster means something, this legitimacy will soon become formal rather than informal.

And that would bring us back, as it has done in Scotland and Wales since devolution, to the fundamental question of democratic political economy in the modern world. Is there today a set of values and a programme around which the Labour-Lib Dem majority, perhaps plus other parties and electorates, could unite and be sustained? Does, indeed, the idea of an anti-Conservative alliance make historical or political sense any longer? Blair was right to take such questions seriously. One day it will have to happen again.